HealthJanuary 28, 2020

Medical school loan repayment: How to start planning now

By: Ogie M. Ezeoke, MD

The profound sense of accomplishment you feel when you get into medical school cannot be overstated. But if there's anything that could dampen the mood, it's the thought of the loans you'll have to pay back when you graduate. According to the Association of American Medical Colleges (AAMC), over three-quarters of medical students graduate with debt. The median debt load? $200,000.

If you can help it, you shouldn't wait until your fourth year to start thinking about medical school loan repayment. Researchers writing in the AAMC's Academic Medicine journal used the financial concept of "net present value" (NPV) to show how entering a medical career can be seen as making a kind of long-term investment. They found that borrowers who enter high-paying specialties like orthopedic surgery can, after a few years, overtake their peers who graduated without debt in terms of NPV; but some borrowers who go into fields like primary care may never see the same return on their investment.

So it pays — quite literally — to do what you can now to take the wind out of your debt. Here's how to begin managing your med school debt as early as possible.

1. Know your financing options

Medical school loan repayment begins as soon as the paperwork is signed. It's worth the time to meet early with your school's financial aid officers to discuss all of your options. Some of those options are things you may have already thought of, but if you don't ask, you may not know.

Create a list of external and internal scholarships with your financial aid officer's help. Scholarships that aren't specific to one institution are worth exploring even before starting medical school. Scholarship programs that take debt off your plate or even provide a stipend will help put you ahead when you graduate. Depending on your interests, some of these may require trade-offs — or be a perfect fit. For example, the National Health Service Corps pays tuition and a stipend for each year you agree to practice primary care in a designated shortage area. Similarly, the Armed Forces' Health Professions Scholarship Program offers sponsorship in exchange for future active duty service.

Your conversation with a financial aid officer should also include a review of the federally guaranteed loans for which you're eligible. Your aid eligibility in college may be different from your eligibility in medical school, and you should review all options for loans early in your first year, certainly before your second. Some loans even offer interest-free credit or other incentives for medical students who intend to pursue a career in certain fields or underserved areas. For example, the Public Service Loan Forgiveness program provides some debt relief for doctors practicing in public service organizations.

2. Establish good financial habits

It's never too early to begin practicing healthy financial management, as an article on personal finance in Plastic and Reconstructive Surgery argues. While this becomes especially important when you start earning an income, putting the right pieces in place during medical school will help you make the most of your loans now and set yourself up for success later.

Specifically, get in the habit of:

  • Keeping a personal budget. Knowing exactly where your money goes is absolutely critical for using it wisely. Begin by tracking your expenses, then layer in limits so that you're covering your essentials and spending the rest responsibly. Your personal budget will certainly change when you graduate — as you start earning some money and begin facing loan repayment — but the basic structure won't.
  • Building emergency savings. It can be hard to budget for emergencies that might not happen when funds are tight, but any financial advisor will tell you that a rainy day fund is one of the most important parts of any financial plan. While emergency funds are typically meant to cover three to six months' living expenses in case you find yourself out of a job, prioritizing some "just in case" savings now will help you cover the more modest unexpected financial hits you might come across during medical school, like unplanned trips or repairs.
  • Evaluating your expenses. As Plastic and Reconstructive Surgery points out, some discretionary purchases have more long-term value than others. For example, things that make your life easier like a new computer or an apartment closer to school are better than fast-fading luxuries like overly indulgent trips or frequent eating out.
  • Finding ways to have fun. A budget that's too tight is worse than no budget at all — not only will you not stick to it, but you'll feel the added guilt of coming up short. This is why any good budget, no matter how small, leaves some room for fun unnecessary purchases. Again, though, try to choose the ones that will bring you the most value.

These budgeting basics won't necessarily lower your debt repayment obligations, but they will give you the tools to manage your loans as intelligently as possible. When you begin your loan payments in earnest, you'll be glad you're already used to practicing good financial habits.

3. Work part time

Ask your financial aid officer about your options for work-study, too. Medical school requires focus and dedication, so time outside of study sessions is limited, but you should still consider it. With some work-study administrative roles, staff will be understanding about your schedule.

Working outside your institution is often more challenging and requires a degree of flexibility that's hard to come by in the first three years of medical school, but this could be an option during your fourth year.

When exploring work-study options with a financial aid expert, the goal should be to reduce your loan burden without adding physical or psychological stressors. Ideally, any part-time work would be able to account for expenses not otherwise covered by loans, such as additional study resources, travel costs and any bills not associated with school.

4. Pick the right housing

Housing costs are a key piece of your budget. Some medical schools offer housing situations that are more convenient for your commute than they are for your wallet. Going into your second year, explore more affordable off-campus options. With reduced housing costs, you can borrow less and ease your medical school loan repayment obligations.

If off-campus housing is not an option for you, explore opportunities to be a resident assistant on campus, as these positions sometimes include free housing.

5. Keep the big picture in mind

It may seem odd to think of saving money while receiving loans, but you'll begin to see the benefits during your fourth year and the beginning of residency. The costs of fourth-year away rotations and residency interview travel and attire often come as a surprise to many medical students. If you've saved money during your first three years of school, these expenses won't hurt your budget as much.

Things may be tougher to manage once you're a resident, however. Salaries typically take some time to kick in and the costs of setting up in a new city and supporting yourself outside of school are usually not budgeted in your loan offer. As a fourth-year medical student, you could potentially take out more loans. However, you may be limited by loan caps and may have to investigate Residency and Relocation Loans. These often have higher interest rates than typical graduate loans but are an alternative to in-school loans.

A 2018 study in Academic Medicine explored how educational debt can shape the career decisions medical students make. It can also add a layer of stress that could contribute to depression and burnout, as the International Journal of Surgery noted. So keep in mind that taking steps to manage your student debt early isn't just about having more money later — it's about setting yourself up to pursue your passions without reservations.

Ogie M. Ezeoke, MD